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U.S.

Department of Education
Office of Inspector General

IDEA Public Schools’


Administration of Grants for the
Replication and Expansion of
High-Quality Charter Schools
November 22, 2019
ED-OIG/A05S0013
NOTICE
Statements that managerial practices need improvements, as well as other conclusions
and recommendations in this report, represent the opinions of the Office of Inspector
General. The appropriate U.S. Department of Education officials will determine what
corrective actions should be taken, including the recovery of funds, in accordance with
the General Education Provisions Act.

In accordance with Freedom of Information Act (Title 5, United States Code,


Section 552), reports that the Office of Inspector General issues are available to
members of the press and general public to the extent information they contain is not
subject to exemptions in the Act.
UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF INSPECTOR GENERAL

Audit Services

November 22, 2019

Tom Torkelson
Chief Executive Officer
IDEA Public Schools
2115 West Pike Boulevard
Weslaco, Texas 78596

Dear Mr. Torkelson:

Enclosed is our final audit report, “IDEA Public Schools’ Administration of Grants for the Replication and
Expansion of High-Quality Charter Schools,” Control Number ED-OIG/A05S0013. This report incorporates
the comments you provided in response to the draft report. If you have any additional comments or
information that you believe may have a bearing on the resolution of this audit, you should send them
directly to the following Department of Education officials, who will consider them before taking final
Departmental action on this audit:

Denise L. Carter
Acting Assistant Secretary for Finance and Operations
U.S. Department of Education
400 Maryland Ave, SW
Washington, DC 20202

Frank Brogan
Assistant Secretary of Elementary and Secondary Education
U.S. Department of Education
400 Maryland Ave, SW
Washington, DC 20202

The U.S. Department of Education’s policy is to expedite audit resolution by timely acting on findings
and recommendations. Therefore, if you have additional comments, the officials listed above would
appreciate receiving them within 30 days.

Sincerely,

/s/

Gary D. Whitman
Regional Inspector General for Audit

Enclosure

400 MARYLAND AVENUE, S.W., WASHINGTON, DC 20202-1510

Promoting the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Table of Contents
Results in Brief .................................................................................................................... 1
Introduction ........................................................................................................................ 5
Finding 1. Annual Performance Reports Were Incomplete or Inaccurate ......................... 9
Finding 2. IDEA Public Schools Did Not Always Charge Only Allowable and Adequately
Documented Expenses to the Replication and Expansion Grants .................................... 14
Other Matter. Incorrect Benefit Rate Used ...................................................................... 18
Appendix A. Scope and Methodology............................................................................... 19
Appendix B. Acronyms and Abbreviations........................................................................ 25
IDEA Public Schools’ Comments ....................................................................................... 26
Results in Brief
What We Did
The objectives of our audit were to determine whether Individuals Dedicated to
Excellence and Achievement (IDEA) Public Schools (1) reported complete and accurate
information on the annual performance reports that it submitted for its Charter Schools
Program, Grants to Charter Management Organizations for the Replication and
Expansion of High-Quality Charter Schools (Replication and Expansion grants) and
(2) spent grant funds in accordance with Federal cost principles and its approved grant
applications. Our audit covered the annual performance reports that IDEA Public
Schools submitted to the U.S. Department of Education (Department) for the period
October 1, 2014, through September 30, 2018. 1 Our audit also covered IDEA Public
Schools’ financial records relevant to the grantee’s expenditures from July 1, 2017,
through June 30, 2018.

To determine whether IDEA Public Schools reported complete and accurate information
on the annual performance reports that it submitted for its Replication and Expansion
grants, we compared the approved grant applications to the information reported in
annual performance reports for its 2014, 2016, and 2017 grants. We also obtained and
reviewed IDEA Public Schools’ records for a judgmentally selected sample of
11 (33 percent) of the 33 performance measures on which IDEA Public Schools reported
in its 2016, 2017, and 2018 annual performance reports and compared those records to
the information reported to the Department.

To determine whether IDEA Public Schools spent grant funds in accordance with Federal
cost principles and its approved grant applications, we obtained and reviewed
accounting records for July 1, 2017, through June 30, 2018. We also obtained and
reviewed records for samples of personnel and nonpersonnel expenses in excess
of $1,000 that were charged to the Replication and Expansion grants from July 1, 2017,
through June 30, 2018.

What We Found
Despite certifying that annual performance reports were true, complete, and accurate,
IDEA Public Schools did not include complete and accurate information for all
performance measures on which it was required to report in its 2016, 2017, and
2018 annual performance reports. We found that IDEA Public Schools did not report any
information for 61 (84 percent) of the 73 performance measures on which it was
required to report in the 2016 and 2017 annual performance reports. In

1
The Federal fiscal year is from October 1 through September 30.

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September 2018, we informed IDEA Public Schools officials of the missing information
for the 61 performance measures. IDEA Public Schools agreed that it did not provide
the required information to the Department. The vice president of financial planning
for IDEA Public Schools stated that some information required to be reported in annual
performance reports is not available in April and must be submitted later in the fall,
via email, to the Department. However, IDEA Public Schools did not provide us with
records showing that it sent the information for the 61 performance measures to the
Department in the fall. In October 2018, IDEA Public Schools submitted to the
Department its 2018 annual performance report, which included all but 2 (8 percent)
of the 23 performance measures on which IDEA Public Schools was required to report.
We also found that IDEA Public Schools did not retain records that supported the
information for 5 of the 11 performance measures on which it reported in its 2016,
2017, and 2018 annual performance reports and were included in our sample of
performance measures. 2

As a result of the incomplete and inaccurate reporting, the Department might not have
had the information it needed to determine whether IDEA Public Schools was (1) making
substantial progress in meeting the performance goals for each Replication and
Expansion grant and (2) eligible for continuation awards.

IDEA Public Schools did not report any information for 63 of 96 required performance
measures because it did not have a process for ensuring that information for all
performance measures was included in the annual performance reports. IDEA Public
Schools did not provide accurate information for the performance measures on which it
did report because its employees were not provided guidelines for determining which
records to use when compiling information for the annual performance report. For
example, reports on enrollments and student persistence were created throughout the
year, but IDEA Public Schools did not designate which reports should be used to prepare
the annual performance report. Finally, IDEA Public Schools did not have a process for
retaining all the records supporting the information it reported to the Department
(see Finding 1).

We also found that IDEA Public Schools did not always spend grant funds in accordance
with Federal cost principles and its approved grant applications. Specifically, of the
$1,002,406 worth of expenses that we examined, IDEA Public Schools charged
$13,800 (1.4 percent) in unallowable expenses and did not adequately document $9,735
(1.0 percent) in expenses that it charged to the three grants from July 1, 2017, through

2
Because we did not statistically select the sample of performance measures, our results cannot be
projected to the universe.

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June 30, 2018. 3 Although IDEA Public Schools had written policies and procedures in
place for approving purchases and documenting the use of grant funds, it did not have
processes in place to provide reasonable assurance that employees consistently
adhered to those policies and procedures (see Finding 2).

What We Recommend
We recommend that the Assistant Secretary for Finance and Operations, in conjunction
with the Assistant Secretary for Elementary and Secondary Education, require
IDEA Public Schools to

• provide the omitted performance information for each award;


• develop and implement policies and procedures to provide reasonable
assurance that it (1) prepares complete and accurate annual performance
reports and reviews the reports for completeness and accuracy before
submitting the reports to the Department; (2) retains records to support
the information reported in the annual performance reports; and (3) charges
only allowable and adequately documented expenses to the Replication and
Expansion grant;
• credit the Replication and Expansion grant for $13,800 in unallowable expenses;
and

• provide records supporting the $9,735 in inadequately documented expenses or


credit the Replication and Expansion grant for this amount.

IDEA Public Schools’ Comments


We provided a draft of this report to IDEA Public Schools for comment on
August 20, 2019. IDEA Public Schools did not state whether it agreed with Finding 1.
However, it agreed with the corresponding recommendations. IDEA Public Schools
agreed to implement procedures to track performance measures and to maintain a
database for all data reported to the Department. It also agreed to create an annual
performance report data policy.

3
We selected 82 (3.7 percent) of the 2,199 expenses in excess of $1,000 that IDEA Public Schools
charged to the 3 grants. The dollar value ($1,002,406) of these 82 expenses amounted to 6.6 percent of
the $15,117,046 in expenses charged to the three grants from July 1, 2017, through June 30, 2018.
Because we did not statistically select the sample of expenses, our results cannot be projected to the
universe.

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IDEA Public Schools did not state whether it agreed with Finding 2. However, it
disagreed that it did not document receipt of $53,442 in testing materials. IDEA Public
Schools stated that it did not complete a purchase order for the purchase. Therefore,
employees were not required to indicate in the financial system that the testing
materials were received before the invoice was paid. IDEA Public Schools stated that it
agreed with the remaining recommendations. IDEA Public Schools also stated that it will
ensure that internal control processes provide reasonable assurance that unallowable
expenses are not charged to Replication and Expansion grant funds.

IDEA Public Schools’ comments are summarized at the end of each finding. The full text
of IDEA Public Schools’ comments is included at the end of this report (see IDEA Public
Schools’ Comments).

OIG Response
For Finding 1, we added information about the incomplete reporting and revised
Recommendation 1.2 so that it addresses submitting all required annual performance
report information by the due dates set by the Department.

We revised Finding 2, removing reference to an inadequately documented $53,422


expense for testing materials. We also reduced the amount of inadequately
documented expenses referenced in Recommendation 2.2. We did not make any other
revisions to the findings and recommendations.

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Introduction
Background
The Charter Schools Program was originally authorized in October 1994 under Title X,
Part C of the Elementary and Secondary Education Act of 1965, as amended (ESEA). The
program statute was amended in October 1998 by the Charter School Expansion Act of
1998 (Public Law 105-278) and in January 2002 by the No Child Left Behind Act of 2001
(Public Law 107-110).

The Consolidated Appropriations Act of 2010, Division D, Title III (Public Law 111–117)
authorized the Department to competitively award grants from funds made available
for the Charter Schools Program to nonprofit charter management organizations and
other nonprofit entities for the replication and expansion of successful charter school
models. From fiscal year 2010 through fiscal year 2016, annual appropriations acts
authorized the Department to use Charter Schools Program funds to award grants for
this purpose. In December 2015, Title IV, Part C of the ESEA, as amended by the Every
Student Succeeds Act of 2015 (Public Law 114–95), authorized the Department’s
continued use of Charter Schools Program funds to competitively award Replication and
Expansion grants.

Replication and Expansion of High-Quality Charter Schools


Grantees may use Replication and Expansion grant funds to (1) expand opportunities for
all students to attend charter schools and meet challenging State academic standards;
(2) provide financial assistance for the planning, program design, and initial
implementation of public charter schools; (3) increase the number of high-quality
charter schools available to students; (4) evaluate the impact of charter schools on
student achievement, families, and communities; (5) share best practices between
charter schools and other public schools; (6) encourage States to provide facilities
support to charter schools; and (7) support efforts to strengthen the charter school
authorizing process. Grantees may also use grant funds to expand the enrollment of
existing high-quality charter schools or create new charter schools that are based on
an existing high-quality charter school model.

From fiscal year 2010 through fiscal year 2017, the Department awarded 78 Replication
and Expansion grants worth almost $649 million to charter management organizations
(see Table 1). In addition to funding for the initial year, grantees are eligible to receive
continuation awards for each subsequent year of the grantees’ 3-year, 4-year, or 5-year
grant periods, subject to the availability of funds. To receive a continuation award,
grantees must submit annual performance reports and demonstrate substantial
progress toward meeting the goals and objectives of their projects.

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Table 1. Replication and Expansion Grants Awarded to Charter Management
Organizations (Fiscal Years 2010 through 2017)
Number of Total Amount Awarded for Total Expected Funding (for
Fiscal Year
Awards Year 1 All Grant Years)

2010 12 $19,045,223 $106,492,274

2011 9 $12,188,456 $59,863,381

2012 2 $5,026,915 $31,818,475

2014 11 $11,885,584 $111,535,467

2015 12 $15,033,867 $85,180,498

2016 15 $17,717,836 $127,190,638

2017 17 $52,412,824 $126,773,527

Totals 78 $133,310,705 $648,854,260

The notices inviting applications for the Replication and Expansion grant program for
fiscal years 2014, 2016, and 2017, required applicants to propose project-specific
performance measures and performance targets consistent with the objectives of the
proposed project. All recipients of these grants were also required to submit an annual
performance report with information that was relevant to these performance measures
and performance targets. 4 According to Title 34, Code of Federal Regulations (C.F.R.)
§ 75.253, when making a continuation award, the Department considers, in part, the
extent to which a grantee has made substantial progress in meeting the objectives in its
approved grant application. 5

Grantees also must only spend Replication and Expansion grant funds in accordance
with Federal cost principles. According to 2 C.F.R. § 200.403, to be allowable under
Federal awards, costs, among other requirements, must be necessary and reasonable
for the performance of the Federal award, be consistent with policies and procedures

4
The regulations at 34 C.F.R. § 77.1 define a performance measure as any quantitative indicator,
statistic, or metric used to gauge program or project performance. Performance target is defined as
a level of performance that an applicant would seek to meet during the course of a project or as a result
of a project.
5
Regulatory citations are to the 2014 volumes.

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that apply uniformly to both federally financed and other activities of the non-Federal
entity, and be adequately documented.

IDEA Public Schools


IDEA Public Schools is a nonprofit charter management organization formed in
June 2000. On June 21, 2000, the State of Texas first authorized IDEA Public Schools to
operate as a public charter school pursuant to Title 2, Subtitle C, Chapter 12 of the Texas
Education Code. IDEA Public Schools’ current charter to operate in the State of Texas
runs through July 2025.

On May 25, 2016, pursuant to Title 28, Part 139, Bulletin 126, of the Louisiana
Administrative Code, the East Baton Rouge (Louisiana) School Board authorized IDEA
Public Schools to open and operate charter schools in its district beginning in 2018.

The Department awarded IDEA Public Schools four, 5-year Replication and Expansion
grants: $14 million in 2010, $15 million in 2014, $12 million in 2016, and $67 million
in 2017. As of the start of our audit in August 2018, IDEA Public Schools had received
about $39 million (36.1 percent) of the $108 million and was serving about
44,000 students enrolled in prekindergarten through 12th grade at 79 IDEA Public
Schools throughout Texas and Louisiana.

The approved goals for IDEA Public Schools’ 2010 grant were (1) achieve college-ready
student results, (2) build a strong and sustainable organization, and (3) grow to scale
with quality. IDEA Public Schools planned to open at least two secondary and at least
two primary schools for each of the five years of the 2010 grant. The approved goals for
the 2014, 2016, and 2017 grants were essentially the same as the 2010 grant’s approved
goals.

According to its 2014 application, IDEA Public Schools planned to serve 9,464 additional
students by opening 18 new schools and expanding 13 existing schools. According to its
2016 application, IDEA Public Schools estimated that, by the end of fiscal year 2021, it
would have 8,202 alumni. It also estimated that about 1,486 of its students would
graduate high school in 2021 and go on to earn college degrees. According to its
2017 application, IDEA Public Schools planned to expand or replicate 16 schools in
Austin, 23 schools in the Rio Grande Valley, 21 schools in San Antonio, and 6 schools in
Tarrant County, Texas.

IDEA Public Schools and the Department agreed that IDEA Public Schools would report
on 22, 23, and 21 performance measures for its 2014, 2016, and 2017 grants,
respectively. Additionally, the Department asked all Replication and Expansion grantees
to report on the following three items for the 2014 and 2016 grants in the 2017 annual
performance report: (1) the number of operating charter schools in the State, (2) the

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number of operating charter schools in the nation, and (3) the Federal cost per student
in implementing a successful charter school. 6 Therefore, IDEA Public Schools was
required to report on 22 performance measures in its 2016 annual performance report,
51 performance measures in its 2017 annual performance report, 7 and 23 performance
measures in its 2018 annual performance report.

IDEA Public Schools’ approved grant applications for its 2014, 2016, and 2017 grants
stated that IDEA Public Schools intended to use Replication and Expansion funds for
personnel, travel, equipment, supplies, materials, contracted services, and
miscellaneous operating costs. It planned to use the funds to expand existing schools
(by adding grades) and to open schools in new regions, including El Paso, Texas, and
Southeast Louisiana.

6
The Department defined a successful charter school as a school that had been in operation for 3 or
more consecutive years.
7
For its 2017 annual performance report, IDEA Public Schools was required to report on 51 performance
measures—22 measures on which IDEA Public Schools agreed to report for the 2014 grant and the
3 additional measures that the Department required and 23 measures on which IDEA Public Schools
agreed to report for the 2016 grant and the 3 additional measures that the Department required. The
Department did not require IDEA Public Schools to report on the 3 additional measures for its 2016 and
2018 annual performance reports.

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Finding 1. Annual Performance Reports Were
Incomplete or Inaccurate
Despite certifying that, to the best of its knowledge and belief, annual performance
reports were true, complete, and accurate, IDEA Public Schools did not report complete
and accurate information for all performance measures on which it was required to
report in its 2016, 2017, and 2018 annual performance reports. As a result, the
Department might not have had the information it needed to determine whether
IDEA Public Schools was (1) making substantial progress in meeting the performance
goals for each Replication and Expansion grant and (2) eligible for continuation awards.

Incomplete Annual Performance Reports


To determine whether IDEA Public Schools reported complete information to the
Department, we reviewed the 2016, 2017, and 2018 annual performance reports that
IDEA Public Schools submitted to the Department. These three reports included
information on the 2014, 2016, and 2017 grants. 8 We found that IDEA Public Schools did
not report any information on 61 (83.6 percent) of the 73 performance measures on
which it was required to report in the 2016 and 2017 annual performance reports that
were due to the Department in April 2016 and April 2017, respectively. In September
2018, we told IDEA Public Schools about the lack of information for the 61 performance
measures. IDEA Public Schools agreed that it did not provide the information for the
performance measures to the Department. The vice president of financial planning for
IDEA Public Schools stated that some information required to be reported in annual
performance reports is not available in April and must be submitted later in the fall, via
email, to the Department. However, IDEA Public Schools did not provide us with records
showing that it sent the information for the 61 performance measures to the
Department in the fall.

In October 2018, IDEA Public Schools submitted its 2018 annual performance report to
the Department. That report included all but 2 (8.7 percent) of the 23 performance
measures on which IDEA Public Schools was required to report for 2018.

8
The 2018 annual performance report was a consolidated report covering the 23 performance
measures common to the 2014, 2016, and 2017 grants.

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Table 2. Performance Measures Required to Be Reported
Performance Measures 2016 Report 2017 Report 2018 Report Totals

Number Required 22 51 23 96

Number Reported 3 9 21 33

Number Not Reported 19 42 2 63

Percentage Not Reported 86.4 82.4 8.7 65.6

Inaccurate Annual Performance Reports


To determine whether IDEA Public Schools reported accurate information to the
Department, we judgmentally selected 11 of the 33 performance measures on which
IDEA Public Schools reported in its annual performance reports for 2016 (3 measures),
2017 (9 measures), and 2018 (21 measures). We compared the information reported
with the records that IDEA Public Schools provided in support of the three reports.
We found that IDEA Public Schools reported inaccurate information for 5 (45.5 percent)
of the 11 performance measures. 9 We found the following inaccuracies.

• 2016 Annual Performance Report. IDEA Public Schools reported that 20,970 of
its 23,508 students had a low socioeconomic status. IDEA Public Schools
provided us with a student enrollment report from the Texas Education Agency
that showed a total enrollment of 23,526, not 23,508. When we brought the
discrepancy to its attention, IDEA Public Schools stated that the 23,508 was
reported in error.
• 2017 Annual Performance Report. For the 2014 grant, IDEA Public Schools
reported that its planned enrollment by 2017 was 28,694. However, IDEA Public
Schools provided us with records from the Texas Education Agency that showed
its planned enrollment by 2017 was 29,335, not 28,694. When we brought the
discrepancy to its attention, IDEA Public Schools stated that 29,335 was the total
enrollment according to the Texas Education Agency’s October snapshot, and
IDEA Public Schools did not have support for the 28,694 that it reported.
For the 2016 grant, IDEA Public Schools reported that 55 percent of its students
graduated from college in 6 years. However, the records showed that only
44 percent of its students graduated from college in 6 years. When we brought

9
Although two of the five inaccuracies were minor, we are reporting them because the inaccuracies
were caused by a systemic weakness in IDEA Public Schools’ processes for preparing annual
performance reports.

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the discrepancy to its attention, IDEA Public Schools stated that the 55 percent
was reported in error.
• 2018 Annual Performance Report. IDEA Public Schools reported that
855 students graduated and 100 percent of them were accepted to a 4-year
college or university. However, IDEA Public Schools provided us with records
that showed 848 graduates applied for and were accepted to a 4-year college or
university. When we brought the discrepancy to its attention, IDEA Public
Schools stated that the 855 was reported in error.
IDEA Public Schools also reported a student persistence rate of 94 percent but provided
us with a student persistence report that showed only an 88 percent student
persistence rate. 10 When we brought the discrepancy to its attention, IDEA Public
Schools stated that the student persistence rate fluctuated throughout the year because
of fluctuations in student enrollment. However, IDEA Public Schools did not provide the
student persistence report to support the 94 percent that it reported in the 2018 annual
performance report.

Grantees Must Submit Performance Reports to Receive


Continuation Funding and Must Certify That They Are
Submitting Complete and Accurate Reports
For grants awarded before December 25, 2014, and grants awarded on or after
December 26, 2014, 34 C.F.R. § 75.118 requires a recipient wanting a continuation
award to submit a performance report providing the most current performance and
financial expenditure information that is sufficient to meet the reporting requirements.
Additionally, 34 C.F.R. § 74.53(b) requires grantees to retain all financial, supporting,
statistical, and other records considered pertinent to an award for 3 years from the date
of submission of the final expenditure report or, for awards that are renewed quarterly
or annually, from the date of the submission of the quarterly or annual financial report.
For grants awarded on or after December 26, 2014, 2 C.F.R. § 200.328(b) requires grant
recipients to submit performance reports that contain, for each grant, a comparison of
actual accomplishments to the objectives of the Federal award established for the
period.

In its Replication and Expansion grant applications, IDEA Public Schools certified that it
would comply with all applicable requirements of all Federal laws, executive orders,
regulations, and policies governing the program. Also, by signing each annual
performance report, IDEA Public Schools certified that, to the best of its knowledge and

10
Student persistence is the percentage of students that start and end the school year at IDEA Public
Schools.

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belief, the report was true, complete, and accurate, and the expenditures,
disbursements, and cash receipts were for the purposes and objectives set forth in
the terms and conditions of the grant. In addition, IDEA Public Schools certified that
all information in the performance report was true, complete, and correct, and the
report fully disclosed all known weaknesses concerning the accuracy, reliability, and
completeness of the information reported.

IDEA Public Schools Did Not Have Processes for Preparing and
Reviewing Annual Performance Reports or Retaining Records
to Support Reported Information
IDEA Public Schools did not report complete and accurate information on all required
performance measures because it did not have policies and procedures describing how
employees should prepare the annual performance reports for the Replication and
Expansion grants. Specifically, IDEA Public Schools did not provide employees with
guidelines for determining the specific information to use when compiling information
for the annual performance reports. For example, IDEA Public Schools generated reports
on enrollment and student persistence throughout the year. However, it did not identify
which of these school-generated reports should be used to prepare the annual
performance report. In addition, IDEA Public Schools did not have a process for retaining
records supporting the information reported in the annual performance reports. Finally,
IDEA Public Schools did not have a process for reviewing annual performance reports to
provide reasonable assurance that they were complete and accurate before being
submitted.

Recommendations
We recommend that the Assistant Secretary for Finance and Operations, in conjunction
with the Assistant Secretary for Elementary and Secondary Education, require IDEA
Public Schools to—

1.1 Provide the Department with records supporting the performance


measures on which it did not report for each award. If the records do not
demonstrate that IDEA Public Schools made substantial progress towards
meeting the objectives set forth in the approved grant applications, then the
Department should take appropriate action.

1.2 Develop and implement policies and procedures for preparing annual
performance reports (to include submitting all required information by the
due dates set by the Department) and reviewing the reports for completeness
and accuracy before submitting them to the Department.

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1.3 Develop and implement policies and procedures for retaining supporting
documentation for the information reported in the annual performance
reports.

IDEA Public Schools’ Comments


IDEA Public Schools did not state whether it agreed with the finding but it agreed with
all three recommendations. IDEA Public Schools agreed to implement procedures to
track performance measures and to maintain a database for all data reported to the
Department. IDEA Public Schools also agreed to create an annual performance report
data policy by November 30, 2019 (see IDEA Public Schools’ Comments).

OIG Response
IDEA Public Schools did not state what actions it would take to address
Recommendation 1.1. Because IDEA Public Schools did not provide us with the policies
and procedures it plans to implement to address Recommendations 1.2 and 1.3, we
could not assess whether they would be responsive to our recommendations.
Therefore, other than adding clarifying language, we did not revise the finding or
recommendations.

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Finding 2. IDEA Public Schools Did Not Always
Charge Only Allowable and Adequately
Documented Expenses to the Replication and
Expansion Grants
For the expenses included in our sample, IDEA Public Schools charged only allowable
and adequately documented personnel expenses to the Replication and Expansion
grants. However, it did not always charge only allowable and adequately documented
nonpersonnel expenses to the grants. Of the $681,395 in nonpersonnel expenditures
that we reviewed, we found that about 2 percent were unallowable and about
1.4 percent were not adequately documented. As a result, IDEA Public Schools had
$23,535 less in funding available from July 1, 2017, through June 30, 2018, to
accomplish the goals set forth in its approved grant application.

Personnel Expenses
We selected 41 of the 1,019 personnel expenses in excess of $1,000 that IDEA Public
Schools charged to its 3 grants from July 1, 2017, through June 30, 2018. The
41 expenses accounted for $321,011 (4.8 percent) of the $6,707,750 in personnel
expenses in excess of $1,000 charged to the 3 grants during the period. We found that
all 41 expenses were allowable and adequately documented.

Nonpersonnel Expenses
We selected 41 of the 1,180 nonpersonnel expenses in excess of $1,000 that IDEA Public
Schools charged to its 3 grants from July 1, 2017, through June 30, 2018. The
41 expenses accounted for $681,395 (8.1 percent) of the $8,409,296 in nonpersonnel
expenses in excess of $1,000 charged to the 3 grants during the period. We found that
36 of the 41 (87.8 percent) nonpersonnel expenses were allowable and adequately
documented. However, five expenses were unallowable or inadequately documented.

We found that 2 (4.9 percent) of the 41 expenses were unallowable. IDEA Public Schools
charged a $12,104 expense for reservation and catering fees for a reunion. IDEA Public
Schools also did not credit $1,696 to the Replication and Expansion grant for materials
that it returned to a vendor. The unallowable amount of $13,800 represented 2 percent
of the $681,395 in nonpersonnel expenses that we reviewed.

We also found that 3 (7.3 percent) of the 41 expenses were inadequately documented.
IDEA Public Schools charged to the grants two expenses totaling $5,885 without records
showing that employees from the schools attended the training and one $3,850 expense
for supplies without evidence that it confirmed that it received the supplies before

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paying the vendor. The inadequately documented amount of $9,735 represented
1.4 percent of the $681,395 in nonpersonnel expenses that we reviewed.

• Training Attendance Not Verified. IDEA Public Schools charged $3,291


and $2,594 to the grant for employees from Tres Lagos school and Rio Grande
City school to attend a training conference. However, according to the
conference attendee list that IDEA Public Schools provided, no employees from
either school attended this training.

• Receipt of Supplies Not Documented. IDEA Public Schools paid $3,850 for
supplies that were included on a purchase order for $151,294. IDEA Public
Schools provided us with records indicating that it received $143,508 of the
items included on the purchase order. However, the records did not include
enough details for us to determine whether the $3,850 in supplies were part of
the $143,508 worth of supplies it received.

Costs Charged to Federal Awards Must Be Allowable and


Adequately Documented
According to 2 C.F.R. § 200.403, to be allowable under Federal awards, costs, among
other requirements, must be necessary and reasonable for the performance of the
Federal award, be consistent with policies and procedures that apply uniformly to both
federally financed and other activities of the non-Federal entity, and be adequately
documented. Per 2 C.F.R. § 200.438, costs for entertainment (including amusement,
diversion, and social activities and any associated costs) are unallowable, except where
specific costs that might otherwise be considered entertainment have a programmatic
purpose and are authorized either in the approved budget for the Federal award or with
prior written approval of the Federal awarding agency.

According to IDEA Public Schools’ “Grant Policies & Procedures” manual (August 2017),
costs must be properly documented to be considered allowable. The manual states that
grant programs are for specified purposes, and costs must be necessary and reasonable
to the success of the grant program to be considered allowable. The manual cautions
employees to read grant agreements thoroughly to verify costs are allowable. The
manual also states that the grant accountant (1) is responsible for, among other things,
ensuring that funds are expended in accordance with the approved grant application
and (2) must review, every 2 weeks, all transactions posted to the Replication and
Expansion grants. If purchase orders are used, the manual states that the grant
accountant must review the purchase orders to ensure that all the items included on
them constitute allowable uses of grant funds.

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According to IDEA Public Schools’ “Accounts Payable Manual” (July 2017), the accounts
payable process begins with receipt of the merchandise. For an invoice to be paid, all
the items received must first be matched to the invoice with no discrepancies noted.

In general, we found IDEA Public Schools’ policies and procedures for approving and
documenting Replication and Expansion grant expenses to be detailed, logical, and
understandable. However, IDEA Public Schools did not have a process to provide
reasonable assurance that employees followed the policies and procedures for
approving purchases and documenting the use of Replication and Expansion grant
funds. Specifically, IDEA Public Schools’ policies and procedures did not indicate that
management should periodically check to ensure that employees confirmed
(1) expenses were allowable uses of Replication and Expansion grant funds before
approving them, (2) training attendance records adequately supported that employees
attended the training for which an expense was charged to the grant, and (3) supplies
were received before paying for them.

Recommendations
We recommend that the Assistant Secretary for Finance and Operations, in conjunction
with the Assistant Secretary for Elementary and Secondary Education, require IDEA
Public Schools to—

2.1 Credit, using a non-Federal source of funds, the Replication and Expansion
grant for the $13,800 in unallowable expenses.

2.2 Provide records supporting the $9,735 in inadequately documented expenses


or credit, using a non-Federal source of funds, the Replication and Expansion
grant for the amount of the inadequately documented expenses.

2.3 Develop a quality control process to provide reasonable assurance that


employees adhere to written policies and procedures for approving purchases
and documenting the use of Replication and Expansion grant funds.

IDEA Public Schools’ Comments


IDEA Public Schools did not state whether it agreed with Finding 2. However, it
disagreed that it did not adequately document receipt of $53,442 in testing materials.
IDEA Public Schools stated that it did not complete a purchase order for the purchase.
Therefore, employees were not required to indicate in the financial system that the
testing materials were received. IDEA Public Schools agreed that it did not retain
adequate documentation for $5,885 paid for training attendance and $3,850 paid for
supplies. IDEA Public Schools agreed with Recommendations 2.1 and 2.3. It also stated
that it would contact the Department to determine the preferred method of payback for
the two unallowable and three inadequately documented expenses. IDEA Public Schools
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further stated that it will ensure that its internal control processes provide reasonable
assurance that unallowable expenses are not charged to Replication and Expansion
grant funds (see IDEA Public Schools’ Comments).

OIG Response
IDEA Public Schools’ “Accounts Payable Manual” states that invoices for direct payments
(those without purchase orders) should be routed directly to the accounts payable
supervisor for approval before the vendor may be paid. During our audit, IDEA Public
Schools provided evidence that an invoice for $53,422 in testing materials was approved
by the accounts payable supervisor, as required by IDEA Public Schools’ policy. Because
the “Accounts Payable Manual” did not clearly indicate whether records showing
confirmation of receipt of goods and services should be obtained before the vendor is
paid, we also requested records showing that the school received the testing materials
before paying for them.

In its response to the draft of this report, IDEA Public Schools stated that, for invoices
without purchase orders, its policy does not require that confirmation of receipt of
goods or services be entered in its financial systems before the vendor is paid.
Therefore, we deleted from the finding the reference to $53,422 in inadequately
documented testing materials. We also reduced the amount referenced in
Recommendation 2.2 from $63,157 to $9,735. We did not make any other changes to
the finding and recommendations.

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Other Matter. Incorrect Benefit Rate Used
IDEA Public Schools used an incorrect rate when calculating Federal Teacher Retirement
System of Texas benefits for employees. According to the director of accounting for
IDEA Public Schools, the Teacher Retirement System of Texas informed IDEA Public
Schools in January 2019 that it used an incorrect benefits rate from September 2017
through June 2018. The use of an incorrect rate resulted in a $162,363 underpayment to
the benefits account. The Department should follow up with IDEA Public Schools to
ensure that it reimbursed the benefits account for the underpayment and that it only
charged the Replication and Expansion grant for the appropriate share of the
reimbursement.

IDEA Public Schools’ Comments


IDEA Public Schools did not provide comments on this other matter.

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Appendix A. Scope and Methodology
We evaluated the completeness and accuracy of the performance measures on which
IDEA Public Schools reported in the annual performance reports for its 2014, 2016,
and 2017 Replication and Expansion grants by reviewing the grantee’s records covering
the period October 1, 2014, through September 30, 2018. We evaluated IDEA Public
Schools’ use of Replication and Expansion grant funds by reviewing records covering the
grantee’s expenditures from July 1, 2017, through June 30, 2018.

We first gained an understanding of the law, regulations, and policies that were relevant
to IDEA Public Schools’ administration of the Replication and Expansion grant by
reviewing the following:

• Title IV, Part C of the ESEA, as amended;


• “Education Department General Administrative Regulations;”
• Title 2 C.F.R. Part 200, “Uniform Administrative Requirements, Cost Principles,
and Audit Requirements for Federal Awards;”
• “Charter Schools Program Title V, Part B of the ESEA Nonregulatory Guidance
(January 2014);”
• 2011 Notice of “Final Priorities, Requirements, Definitions, and Selection
Criteria; Charter Schools Program Grants for Replication and Expansion of High-
Quality Charter Schools;”
• Office of Innovation and Improvement Dear Colleague Letter on ESEA Flexibility
to Current Grant Recipients (November 15, 2017); and
• IDEA Public Schools’ approved grant applications for its 2014, 2016, and 2017
awards and any subsequent changes that the Department approved.
We then gained an understanding of IDEA Public School’s policies and procedures for
reporting information in annual performance reports, authorizing expenditures of grant
funds, and ensuring grant funds are spent only on allowable activities. Next, we
compared IDEA Public Schools’ records to the information it reported to the
Department on its 2016, 2017, and 2018 annual performance reports. Finally, we
reviewed records, such as invoices and time and effort documentation, for a sample of
expenses in excess of $1,000 that IDEA Public Schools charged to the Replication and
Expansion grants.

Internal Control
After reviewing the law, regulations, and policies relevant to the administration of
Replication and Expansion grants, we determined that IDEA Public Schools' control

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activities for ensuring that it submitted complete and accurate information to the
Department in the annual performance reports and for ensuring that grant expenses
were allowable and adequately documented were significant to the audit objectives. 11

We gained an understanding of the control activities over reporting information in


annual performance reports by interviewing IDEA Public Schools officials and employees
responsible for the Replication and Expansion grants. We gained an understanding of
the performance measures on which the grantee was required to report each year and
what those performance measures should represent by reviewing the three approved
grant applications.

We gained an understanding of IDEA Public Schools’ control activities over authorizing


expenditures of grant funds and ensuring that funds were spent only on allowable
activities by interviewing IDEA Public Schools officials and employees responsible for
authorizing, obligating, and recording the expenditure of Replication and Expansion
grant funds. We also reviewed policies and procedures and accounting records,
including a list of all expenses, covering July 1, 2017, through June 30, 2018.

To determine whether IDEA Public Schools implemented its control activities as


designed, we selected samples of performance measures and expenses and used
analysis techniques to assess implementation of the control activities over reporting
information on the annual performance reports and spending grant funds. We identified
deficiencies in IDEA Public Schools’ control activities. Specifically, we found that IDEA
Public Schools did not have policies and procedures for (1) determining the specific
information employees should use when compiling information for the annual
performance reports, (2) reviewing annual performance reports for completeness and
accuracy before submitting them to the Department, or (3) retaining records to support
the information that was reported in the annual performance reports (see Finding 1).
We also concluded that IDEA Public Schools did not have a process to provide
reasonable assurance that employees followed policies and procedures for approving
purchases and documenting the use of Replication and Expansion grant funds
(see Finding 2).

Sampling Methodology
To achieve our audit objectives, we selected samples of reported performance
measures, personnel expenses charged to the grants, and nonpersonnel expenses
charged to the grants.

11
Control activities are the policies, procedures, and practices that management establishes to achieve
objectives and respond to risks.

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Reported Performance Measures
We judgmentally selected 11 (33 percent) of the 33 performance measures on which
IDEA Public Schools reported in its 2016, 2017, and 2018 annual performance reports
for its 3 Replication and Expansion grants. We selected two performance indicators that
the Department established to measure progress towards meeting the Replication and
Expansion grant program’s goals: (1) the number of charter schools in operation around
the United States and (2) the percentage of fourth and eighth grade charter school
students who are achieving at or above the proficient level on State examinations in
mathematics and reading. We also selected measures (such as enrollment and student
persistence) that could only be supported by IDEA Public Schools’ records. We
determined that such measures were more susceptible to manipulation than measures
that could be verified by external sources, such as the Texas Education Agency.

Specifically, we judgmentally selected the following 11 performance measures.

1. Percentage of students with low socioeconomic status (2014 grant, 2016 annual
performance report).
2. Number of charter schools in operation (2014 grant, 2016 annual performance
report).
3. Enrollment number for the next academic fiscal year (2014 grant, 2017 annual
performance report).
4. Percentage of students graduating college in 6 years (2016 grant, 2017 annual
performance report).
5. Number of charter schools in operation (2016 grant, 2017 annual performance
report).
6. Percentage of 4th and 8th grade charter school students performing at or above
the State level in mathematics and reading (2014, 2016, and 2017 grants,
2018 annual performance report).
7. Percentage of graduates who are accepted to a 4-year college or university
(2014, 2016, and 2017 grants, 2018 annual performance report).
8. Average ACT score (2014, 2016, and 2017 grants, 2018 annual performance
report).
9. Student persistence rate (2014, 2016, and 2017 grants, 2018 annual
performance report).
10. Percentage of students with low socioeconomic status (2014, 2016, and 2017
grants, 2018 annual performance report).

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11. Number of Replication and Expansion grant-funded schools in operation (2014,
2016, and 2017 grants, 2018 annual performance report).
Because we did not statistically select the sample of performance measures, our results
cannot be projected to the universe.

Personnel Expenses Charged to the Replication and Expansion


Grants
We selected 41 of the 1,019 personnel expenses in excess of $1,000 that IDEA Public
Schools charged to the 2014, 2016, or 2017 grants from July 1, 2017, through
June 30, 2018. The 41 expenses amounted to 4.8 percent ($321,011) of the $6,707,750
in relevant personnel expenses charged to the 3 grants during the period. We
judgmentally selected the personnel expenses with the highest dollar value in each of
the six personnel object code categories: employee stipends, extra duty pay, group
health insurance, health reimbursement benefit, teacher retirement, and wages. We
also randomly selected 35 of 1,013 expenses from the 6 personnel object code
categories. Because we did not statistically select the expenses, our results cannot be
projected to the universe of personnel expenses within the level of precision required
by our policy.

Nonpersonnel Expenses Charged to the Replication and


Expansion Grants
We selected 41 of the 1,180 nonpersonnel expenses in excess of $1,000 that IDEA Public
Schools charged to the 3 grants from July 1, 2017, through June 30, 2018. The
41 expenses amounted to 8.1 percent ($681,395) of the $8,409,296 in relevant
nonpersonnel expenses that IDEA Public Schools charged to the 3 grants during the
period. We judgmentally selected the nonpersonnel expenses with the highest dollar
value in each of the 16 nonpersonnel object code categories: consulting services,
contracted services, electricity, employee travel, general supplies, maintenance and
repair, miscellaneous, reading material, rentals-one time, rentals-operating leases,
student travel, supplies and materials, supplies for maintenance, telecommunications,
testing materials, and textbooks. We also randomly selected 25 of the 1,164 expenses
from the 16 nonpersonnel object code categories. Because we did not statistically select
the expenses, our results cannot be projected to the universe of nonpersonnel expenses
within the level of precision required by our policy.

Analysis Techniques
To determine whether IDEA Public Schools reported complete and accurate information
on the annual performance reports it submitted, we compared the three approved
grant applications and any subsequent changes to the information in the three annual
performance reports on the 2014 grant, the two reports on the 2016 grant, and the only
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report on the 2017 grant. Next, we obtained enrollment reports, attendance reports,
charter authorization records, testing results, and college acceptance letters for 11 of
33 performance measures and compared those records to the information reported to
the Department. If we identified any discrepancies, we asked IDEA Public Schools
officials or employees to explain the discrepancies and provide additional records to
support their explanations.

To determine whether IDEA Public Schools spent grant funds in accordance with Federal
cost principles and its approved grant applications, we reviewed invoices, purchase
orders, training attendee lists, receiving reports, time and effort documentation, benefit
rates, and salary schedules for the expenses in excess of $1,000 and charged to the
Replication and Expansion grants. If we identified expenses that were unallowable or
inadequately documented, we asked IDEA Public Schools officials or employees to
provide an explanation for why unallowable expenses were approved and to provide
additional records for any expenses that we considered inadequately documented.

Use and Reliability of Computer-Processed Data


To achieve our objectives, we relied, in part, on computer-processed performance
measure and expenditure data that IDEA Public Schools provided. We assessed the
reliability of the data by looking for incomplete or illogical data, such as numerical
values in fields that should have contained only nonnumerical values, nonnumerical
values in fields that should have contained only numerical values, missing or blank fields
where not expected, duplicate data, values outside a designated range, and values
outside valid periods. We also compared the performance measure data to enrollment
reports, attendance reports, and college acceptance letters and the expenditure data to
invoices, purchase orders, semiannual certifications, and a revenue and expense report
showing the disbursement dates and amounts of Replication and Expansion grant funds
that IDEA Public Schools received from the Department.

Based on these analyses and comparisons, we concluded that the computer-processed


performance measure and expenditure data were sufficiently reliable for the purposes
of our audit.

Compliance with Standards


We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.

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We conducted this audit at IDEA Public Schools’ offices in Weslaco, Texas, and our
offices from August 2018 through August 2019. We discussed the results of our audit
with officials from IDEA Public Schools on June 27, 2019, and received their comments
on the draft of this report on September 20, 2019.

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Appendix B. Acronyms and Abbreviations
C.F.R. Code of Federal Regulations

Department U.S. Department of Education

fiscal year October 1 through September 30

IDEA Public Schools Individuals Dedicated to Excellence and Achievement Public


Schools

ESEA Elementary and Secondary Education Act of 1965

Replication and Charter Schools Program Grants for Replication and Expansion
Expansion grants of High-Quality Charter Schools

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IDEA Public Schools’ Comments

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